Wednesday, August 29, 2012

► SOUTH AFRICA: SAA looking at Ghana for a potential West Africa hub as biting economic times push Mango to go regional.

SAA logoIn a Q&A session before the South African Parliamentary Portfolio Committee on Public Enterprises on Tuesday 28 August 2012, South African Airways (SA) CEO Siza Mzimela gave an overview of SAA's current financial state and outlook in addition to future route developments, critical to the carrier's long term viability.

Financially, she stated that while SAA had seen an increase in revenue of 18% on the previous year, things were still difficult for the national carrier, especially regarding global oil prices, which had added USD260million to SAA's fuel bill.
"Clearly we are still hurting, the economy is still very tight, but what we are seeing, which maybe makes us excited, is that we are beginning to see a recovery. "
Also present during the meeting was SAA's Head of Corporate Finance, Phetolo Ramosebudi, who said that SAA had made a profit of USD30million on its hedging operations this year having adopted a fuel hedging model developed by risk management specialists, Oliver Wyman. In 2004 and 2008, SAA lost USD710million and USD120million respectively in fuel hedging losses (fuel hedging is an agreement between an airline and a fuel supplier to purchase vast quantities of jet fuel at a predetermined price for a specified future time period which can either benefit, or severely harm an airline's financial outlook, if mishandled).

On the route network development front, SAA lamented the increasing pressure that carriers like Emirates, Qatar Airways, Air France and Ethiopian Airlines were putting on the company on its international routes, adding that this was would have a two pronged effect on the carrier. 
South African Airways' Africa Route Network
South African Airways' Africa Route Network
Firstly, it would force SAA to refocus its efforts on developing its African market, with emphasis on Harare, Dar es Salaam and Accra and especially the under-served West African market - a policy the airline has maintained inline with a directive from  Public Enterprises Minister Malusi Gigaba, that states that "SAA needs to start flights to every African capital city and cut routes to destinations on other continents." How that will be implemented in the long run is still a headache, as the South African Department of Transport will have to gain rights to regional markets where many African governments still employ heavy protectionist policies to safeguard their own local airlines.
Secondly, to make up for any under-capacity issues on these new regional routes, SAA would have to deploy its LCC Mango onto regional routes -  (it currently only serves South Africa).
"SAA is looking at the feasibility of establishing an SAA/SA Express/Mango hub in Ghana. To be able to do this, SAA needs to take a 49% share and acquire a sound local partner with capital. SAA would increase its Ghana capacity for long-haul feeder traffic, especially to South America, Asia and Australia. SAA subsidiaries SAA Technical, Air Chefs and Cargo would then transfer skills to a new airline in Ghana to ensure government support."

Ethiopian Airlines' ASKY Airlines in Lome, Togo
Ethiopian Airlines' ASKY
Ethiopian Airlines has already ventured fairly successfully into the West African aviation market with its  division ASKY Airlines, based out of Lomé, Togo.

In order to sustain this ambitious expansion/long term survival plan, the airline would have to invest heavily in fleet renwal, and of the USD750 million 'requested' from the South African government in May of this year for fleet renewal purposes, which many called a bailout even if Mzimela preferred to call it a 'recapitalisation', Ramosebudi said SAA had spent USD96million and was "considering various options for financing the acquisition of 20 Airbus A320 and A321 aircraft, the last of which would be delivered by late 2017." 
No mention was made about their long haul fleet plans, in which it was reported in May that SAA was considering Boeing 777s and 787s.